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One-Tier Versus Two-Tier Board Structure

The one-tier board structure was formally introduced in Dutch law as per January 1, 2013, with certain mandatory rules becoming effective. Since the one-tier board structure was originally viewed as an Anglo-Saxon phenomenon, only few Dutch companies had a one-tier structure before the introduction in Dutch law, based on specific clauses in their articles.

DifferencesIn the traditional two-tier board structure, a separate board of supervisory directors supervises the board of managing directors and gives advice to the managing directors. In a one-tier board structure, the executive directors and non-executive, supervising, directors are all members of one and the same board, i.e. they jointly form a single corporate body.
The one-tier board structure could therefore be an interesting option for international companies to limit the differences in governance between the Dutch company and the foreign parent company.

Pros and Cons of a One-Tier Board

Involvement non-executive directors: Since the executive and non-executive directors jointly form one corporate body in a one-tier board structure, this may have a positive influence on the directors’ sense of shared responsibility; the non-executive directors’ involvement in the business operations increases.

Information provision process: Creating a single corporate body may simplify and accelerate the information provision process between daily management and supervision. However, a greater involvement of the non-executive directors, may also involve a certain risk: the non-executive directors’ greater involvement in the company’s state of affairs may mean that they will operate less independently vis-à-vis the executive directors.

Responsibility and Liability: Being part of a single body means that the non-executive directors in principle have the same responsibility and liability as the executive directors. Under circumstances, this may create more risk for them than for members of a separate supervisory board (e.g. liability in the event of a bankruptcy or if after a distribution the company is not able to meet its financial obligations).

Decision making process: The decision making process is expected to be less time consuming as decisions, which otherwise would require supervisory board approval, only have to pass one body.

Statistics One-Tier BoardIn order to verify the popularity of the one-tier board structures for Dutch Companies, we have requested the Dutch trade register to provide us with the details of all companies which are registered as having a one-tier board. The Dutch trade register informed us that 409 companies were registered with a one-tier board and it appears that out of these 409 companies, 354 companies are Dutch BVs (private limited liability companies), 49 companies are Dutch NVs (limited liability companies) and 6 companies are SEs (Societas Europaea).
This means that overall only a very small percentage of the hundreds of thousands of Dutch companies has a one tier board. Among listed companies, however, the percentage is much larger: of the 49 NVs with a one tier board, 31 are listed on a stock exchange. With 140 listed Dutch NVs in existence, over twenty percent has a one-tier board.

Since the formal introduction of the one-tier board in The Netherlands, an increasing number of companies have implemented a one-tier structure; this in particular applies to listed companies. The one-tier board therefore is an additional alternative for structuring the supervision, but it has certainly not replaced the traditional two tier board model.